The Merrill Option Volatility Estimate, or Move, aims to track the implied volatility of US Treasuries over the coming month, based on prices in derivatives markets. It is the bond market equivalent of the Cboe’s Vix volatility index, considered the stock market’s fear gauge.
The Move index dropped to 45.2649 on Wednesday, down from its January low of 45.8824.
The US Treasuries market has maintained a predictable path in recent weeks, despite geopolitical risks and mounting concerns over the direction of monetary policy.
Yields on shorter-dated Treasury bills and notes have continued their gradual rise, spurred on by expectations that the Federal Reserve will continue to raise interest rates.
Longer-dated Treasuries have been more range bound, as trade wars fears have balanced against continued strength in the US economy. The benchmark 10-year Treasury yield has traded within a 9 basis point range so far this month.
“There is a volatility strike, especially for longer dated yields,” said Ian Lyngen, head of US rates strategy at BMO Capital Markets. “On the one hand you have positive momentum in the US economy. On the other hand you have the trade war and the implications for growth from that. They are duelling forces that have arrested the market.”
It has meant the difference between two- and 10-year yields has compressed. When short-dated interest rates rise above longer-dated interest rates it is considered a warning sign of a coming recession and analysts will be watching upcoming data closely for signs of economic slowdown that could push the Treasury market out of its current range.